UPDATE: Moody's ITA downgrade took some shine off as EUR drops 60 pips and ES now 13pts off its highs. TSYs are 3-4bps lower in yields. Gold/Silver not moving much on it.

On the basis of old news, more promises, lack of any clarity, and Dexia's dump on the Belgian government, the equity markets staged a 4% rally in the last 45 minutes to end an incredible day. Our assumption is that this was simply the bounce that everyone expected as we seemed to have squeezed shorts into lunch and were limping back lower on AAPL disappointment. Quite clearly, there were a few uncomfortable equity shorts who were squeezed out rapidly and incessantly as the S&P massively outperformed credit as well as the broad basket of risk assets - even TSYs only managed to sell back to earlier day's high yields (as opposed to extending). Gold/Silver rallied (though well off week highs) as the USD dumped back near the week's lows and copper and oil rallied but again no where near as ebullient as stocks. Evidently, the equity move is exuberant at best but these squeezes seem able to maintain longer than anyone expects.

The clearest example of the exaggerated move in equities is probably against the broad-basket of risk assets known as CONTEXT which tracked very well all day but was simply unable to keep up with the covering in ES as we rallied. While it does not mean equities are absolutely expensive, it does imply there is a disconnect between risk appetites relatively speaking and would suggest equity weakness short-term (from our experience).

We had noted all day that credit was underperforming - and more noticeably that single-name credit was underperforming indices - suggesting forced long covering or horizon changes (from short to long) in macro to micro hedging. The indices in general did not initially follow ES but as the rally took hold they started to catch up (understandably so) but significantly underperformed ES as we closed.

AAPL was the story of the middle of the day as it failed to provide an iPhone 5 (all-singing-all-dancing awesomeness) and fell more than 5% at one point (testing its 200DMA) before ripping back higher to its VWAP and then a little more to close down around 0.6%. Once again - we have run out of adjectives to describe that kind of move in that market cap but whatever helped the market certainly saved a few hedge fund's years today!!

Sectorally, it is more what we would expect from a bounce day - the heavily shorted and prime-for-a-short-squeeze financials ripped almost 6.5% higher in that last 45 minutes. Amazingly, MS is now +3.25% from Friday's close, rallying 14.5% in the last 45 minutes with Goldman and Wells Fargo also making into the green on the week. In CDS land, MS opened 645/665 and closed 555/575 (still a little wider on close) in 5Y but 1Y remains 780/850 and was active today - moves in other financials were similar in style to MS (glide rally, jump wider early afternoon, then gap tighter into close) but lesser magnitude.

Enough of the superlatives...TSYs did not get quite as excited. 30Y did manage a 11bps rise in yields from today's low yields but was only just above the earlier high yields - significantly off the levels of yesterday still (as equities test them).

There was modest underperformance in the 5-7Y TSY bucket and that fits with the heaviest net-buying in corporate bond land today seen in the 3-7 and 7-12Y buckets respectively. For some perspective on the moves in the indices relative to single-names today IG was 0.5bps tighter while its fair-value widened 7.5bps (massively cheap to the index now) and HY managed a 1bps compression on the day (as opposed to 48bps decompression in intrinsics) but we do note that short-dated HY was wider all day. Just for further perspective the equity move today is equivlent to 37bps more compression in HY and 5.5bps compression in IG - another point of evidence that the rally was overdone (but that's optically clear we assume).

FX saw the USD dump as AUD ripped higher as did every other major (apart from JPY) as carry FX took off - it was initially delayed in its response but once we got going in ES it didn't take long to rip.

Precious metals and commodities all managed to rally back as the dollar lost ground with oil finding the day's highs but copper, gold, and silver all stayed well of the earlier day's highs. Silver clung to $30 at the close as oil peaked over $78.

All-in-all - an unbelievable last 45 minutes to what was making sense as a day so far with Bernanke's perspective early on. While we would prefer to fade this equity strength, we would suggest a half/third unit size as these squeezes can extend incredibly - though that seemed to be what we saw today - especially in the banks.

Late Update - by request our short-squeeze indicator shows two moments today that were good setups for notable potential squeezes - as the Goldman Short-Interest index hugely underperformed (which is good for shorts) and then greatly outperformed (squeezed) as the rallies came on...obviously not foolproof but nevertheless useful for some context.

This is still a bear market, but you'd better understand THEY INTEND TO SQUEEZE EVERY SINGLE SHORT DRY on the way down. They know exactly who the shorts are and what cards they are holding. If you play, you lose. You are public enemy #1. They can f#ck you and everyone will applaud.

As always, time will tell. I suspect a rally is forthcoming, I just thought we would get closer to 1020 S&P, and we still might, but I think a rally is close at hand. Short term rally, but it will be a chance to make some quick money, and then roll over into puts for the collapse, which will take out the 2009 lows on the way down.

Patience my friend. 2 million put options on the S&P for shocktober means 1 of 2 things. Either TPTB are gearing up for some serious profits, or they are trying to fool everyone trying to ride their coat tails into getting sheared. Either way, there is about to be some movement and it never goes in a straight line.

Yep, patience is the key. I did sell my CMG puts today for a tidy profit. Not a home run, I came in a little late, but not bad. Still holding my March LULU puts for now, we'll see what happens the next couple of days. If it looks like this is the rally I'm expecting, I'll sell the puts and buy some index calls. If my forecast is correct, I see potential for a fairly enthusiastic rally for a couple of months. But again, I'll see how the next day or two looks before committing any capital one way or the other. In this environment, practice patience and keep your powder dry for the big moves.

Now that the dust has settled a little, I think it's possible this afternoon was just a bone-crushing short squeeze. I'm gonna sit tight, for now. Maybe we will drop down to 1010-1020. If we drop to 1020, that's the point I'll go long. If we bounce from here, well... I don't know. Fuck it. It's late and my brain is too fried for this shit.

I don't think "Full Retard" fully describes the market. It's more like a multiple personality disorder coupled with manic depressive and seasonal affective disorder with a dash of schizophrenia for how it responds to the (rumor) voices in its head.

No.. that's what people think you have when they walk by your office as you stare at the market and hear your expressions of complete and absolute bewilderment. Something along the lines of "WHAT THE SHIT, MOTHER FUCK, CRACK ASS.. STUPID FUCKIN... AAAAAAAAHHHH!!"

I don't think "Full Retard" fully describes the market. It's more like a multiple personality disorder coupled with manic depressive and seasonal affective disorder with a dash of schizophrenia for how it responds to the (rumor) voices in its head.

Aye, too many socialists on there... it's so obvious what's going to happen if the 99%er people get their way. It won't be less government libertarianism. It will be socialism... :(

I tried to post this, but comments not uploading now:

Hi all,

First, thanks to all the protesters who are out there on the street even if the main stream media seems to be ignoring you.

I'm sure every one of these protesters has a different idea of what needs to change in modern western society which is why it's proving so difficult to speak with a single voice.

Personally, I'm not keen on the proposals listed above. They are socialistic and expect entitlements without responsibility. Also, what is fundamentally wrong with free trade?

I believe that what we need is lees government, more freedom, more transparency, and a money system where private institutions cannot create money out of thin air (i.e. abolish fractional reserve banking)..

I believe in welfare and health care but a person, if able should be expected to work in some capacity for these (even unemployed)..

do any of you think government can spend money more wisely than yourselves to deliver the services you yourselves require...?

when the government spends money badly, it is robbing you of your free time, or of a better standard of living, or of the possibility of an early retirement - there is no free lunch but with the original spirit that built the US and other western powerhouses, we could all enjoy a more prosperous, fairer society

It's all about power. TPTB cannot afford to lose right now or they will lose everything. So they will pull every trick, every stunt possible, no matter whether it is obvious or not. They don't care at this point. It's life or death for them. A cornered and dying animal can fight with surprising strength and visciousness. Expect no less.

That said, moving the market for an hour is not "moving the markets." They just bought themselves another day is all. The entire system could crash at any time.

TPTB are not worried about losing. They are worried about what life will look like after they win. They would like it to be more normal than most predictions. Normal or not, they'll be on top.

I respectfully disagree with your observation: "moving the market for an hour is not "moving the markets."

Do you know what they got done in that hour? The derivatives? The leverage? How many thousand stocks follow the DJIA when it moves one way or the other? How short were they when they covered at the low of the day, How long when they sold at the top? How much in profits did they remove from our wallets?

They don't call them TPTB because they don't know what they are doing.

Well if the webpage stays down and my automatic payment doesn't get deducted and they use it as an excuse to hit me with a fee or raise my rate, I'll just stop paying them. Before I do that I might just take a few hundres out of a couple ATMs. Maybe I'll help the economy by buying a new car on the credit card.

nah. tyler called this weeks ago~~~the volatility and called: "buy cheap straddles"! which i, as an old [but no longer] options guy figure = buy calls when the market is sold down, buy puts when rallies start getting pooped

pretty aresome, really; fade the bullies; these are nice swings for this, and spreading & hedging is permitted

BTW, I just have to ask this rhetorical question since no one else has: WHY DOESN'T GOLD EVER GET THE PARABOLIC MARKET ALGO-DRIVEN RAMP?

If this market rally was real, Gold would have soared. Let's see, Europe is going to recap their banks with money they don't have by taking on board toxic assets on balance sheets that are toxic themselves on the heels of European taxpayers that are in a depression.....

Selling pressure remained higher. Markets were oversold, bounce was due.

World is not ending today, DEXIA is not Lehman. DEXIA didn't go tits up. Lehman could have been saved in 2008 (which many experts suggested at the time) and markets would not have tanked the way they did in 2008 and 2009.

Next few days will tell what is going on. MS up 12% because MS is not gonna go bust on the Greek derivative trade?

So many possibilities, so little time to discuss it all. Just remember who is controlling the "market" and that the "market" is absolutely no reflection of the real economy.

Now, why would something be saved, when it was murdered for a reason? As for the next few days giving a tell, well, they will be every bit as fictional as the last few, so other than the next storyline emerging (with a few double/triple/quadruple head fakes), I wouldn't put much faith in them.

like the post, but zh can be a bit schizophrenic. complain about the algo momo chasers not trading on data, then say the jump is from the euro rescue rumor. nonsense. it's because if you do the charts on a weekly we were due for a rally.

also please use the hourly macd indicator as to where the short squeeze is going to happen or end. rather good with the wilders rsi

I consider myself a seasoned investor who always questioned the official lines (read spin). For more than 15 years, I participated on many blogs/bulletin boards. I learned a lot from them. But it is nothing like what I learned from ZH. I've been reading ZH for 2 years. I cannot express in words how much your site has helped me in trading better or gaining wisdom. I believe that Zh is a site that the establishment wishes that goes away.

this smells like a typical liquidity injection. everything goes up, including crude oil, (the all in one market is back). no point in parsing sectors, it was "all in" this PM, and in last half hour, which is when orders for tomorrows double and triple leveraged index ETFs have to be placed. now you and I know that having information like that ahead of time in no way implies that someone would share it, or steal it and therefore frontrun tomorrows moves, today??

and to make it all smell a bit worse, the FOMC cheat (chief) spoke earlier, and may have decided to light up the APPLAUSE sign. his gangster boss is in danger of losing the racket, and so there is great pressure to produce a bottom in this market, and get the whores and pimps working, so they can "tax" their efforts.

sigh, a cop costs a lot more now than it did in Al Capones day, about 4.6 million to be exact. all this inspires confidence, doesn't it. by the way there's a great new article over at Agora Finanicial on the cost of the SECRET government, a brief sketch of how it has grown, and a few stock picks for those who want to get rich on the new security state, for subscribers of course. I would provide a link, but the Feds watch those things.

180B euros is a lot of money for just one bank. GDP of France+Belgium is less than 20% of US GDP. So scaling this up by 5 times 1.32 $/euro, means this would be equivalent to a $1.2T bailout if done by the US. For just one bank. And France has its own problem banks.

This looks like a desperate move by France to try to forestall a run on its own banks. And even if France is willing and able to bail out its own banks, who is going to bail out southern Europe?

Germany is the key. The pressure on Germany to "step up and do the wrong thing" will increase greatly. Will they cave?

Everytime the Senate asked Bernanke if he could do anything to help the economy, he smiled a 'What me worry?' grin. Wouldn't you be a little worried if your Neo-Keynesian policy was turning up lame? Either he is one of the dumbest men on the planet, or he is up to something. I guess we will find out if he loaned Europe $100 trillion from his magic digital printing press soon. Pay up taxpayers, the Bernanke is a comin'.

he's already parked the cash in their MM funds. you know how this works, I don't pay your mortgage, but I buy your food so you have enough money to pay your mortgage. this is how M2 keeps rising, the BOJ did this in Japan in the lost decade, BB is a student of those times. that US taxpayer dollars propping up Euroland, and you have nothing to say about it.

Look, I know algos are fast, I know there is limitless money in the PPT accounts, and I know that when someone bids 4% or more over ask they usually get what they try to buy really quickly, but on an index with a market cap of over twenty trillion how do you even physically possibly move it by more than a trillion in less than 45 minutes? I would be tempted to dismiss it as panic buying because of a particularly strong rumor on the floor but still the question remains, more than a trillion dollars of buying in three quarters of an hour with virtually no sell volume? This really does not make any sense from any angle. It is almost time to haul out the fat finger again, but first things first, sell now ask questions later because any market this crooked is a time bomb about to blow.

The market was acting funky all day. GM and many of the metals/energy names rallied after the open. MS opened down 7% to trading flat faster than Becky Quick jumps in the sack with The Old Country Buffett. Something was up. We were also at "death cross" levels and when AAPL was down 5%, it seemed like game over.

So lo and behold chatter of "EU" and "recapitalization" picks up steam after an FT plant.

Today reminded me of a lighter version of the fast rally in August after Bernake said rates would remain low for the next 3 years. Market opens lower. Bearded one on TV. Sectors of market act weird. Market looks like it will finally roll over. Then the bogus chatter/news/rumors. Upcrash.

It probably has legs. Septermber was brutal and guys want to chase perfromance in the Q4.

Sellers have been hitting bids, not placing a whole lot of real offers. Thus, there would not be much above the market except air and HFT ether. Neither present much resistance. A small amount of money can add a whole lot of "value". Of course, when the market moves in one's favor, mark-to-market is gospel truth.

It occurs to me that those behind the Market lift off ought to sell their services to NASA. If they can get that piece of shit to go that high that fast, then they should be able to put an aircraft carrier into orbit.

They would probably get a green energy grant too given that the launch vehicle runs on bullshit and not rocket fuel......

FAZ essentially to a tee follows the S&P regardless of all the decay talk to a near tee and all of these moves do nothing but prevent shorts form entering only decreasing the amount of people left to cover in a decline which can actually buoy the markets...The numbers are the numbers and all the talk in the world will not prevent the EUR reaching parity and eventual collapse as nations depart to recreate their own currency.

I am short for 3 years now and proud and sleep very well at night knowing that our entire system is predicated upon lies just to pretend it is solvent. It is over...it has been over..and if it takes another 2 years to prove it is over I will be wealthy beyond my wildest dreams. Just think of the 88 years of 0% rates, fiction accounting, media lies and pumping, short squeezes, banning of shorts, margin hikes, and literally 738 rumors needed and 3 QE programs just to get us to THIS point. Once again as they were n 2008 they will be late to the party dependent upon Uncle Sugar and be left wondering "what happened?"..

Get Short...Get Shorter...Stay Short..margin yourself to the hilt short and come back in 5 years. There is no money nor political will left to print..it is over.Just short it all..walk away and come back with your 5000% gain in 5 years and buy up the remnants of this disaster of a global economy.

Don't stress it, three days of selling there had to be one day for a melt-up rally. I actually had this pencilled in for Wends/Thursday...there you go, happened early. It's a meltup via a bulltrap via a dead cat bounce via "you buy into this, you'll lose money".

Point is, Asia is slowing down rapidly, US markets aren't factoring this in, to transfixed on Europe which is all but a write off. Watch Asian markets next few hrs, they can't muster a rally and fall back into the neg. The bear will knock this f*cking bull to the ground.

I think so, if the CME assumes volatility will cease on financials, and they cut margins, but we still get volatility on commodities. That's a short sell sign. The melt-ups will cease, just melt-downs

But, markets were oversold and we still need to trade lower. When you see a melt-up like last session you know it's a bulltrap.

As for Bernanke, he is clueless, not only of how markets work but when commodities start to sell (prior to Greece) there is a crisis brewing and it has nothing to do with Europe Zone which is a zombie anyway. So QE/Op twist or what ever else he can pull...won't do anything.

I made long term EUR/USD prediction (2011-2017) to see if there is some support t her for ideas to understand better the default/devaluation ( Europe) debt deflation/default ( USA) sequence I have been looking at lately.

Everyone expecting the BIG BANG isn't going to get one. There will be no Greece default in the formal sense as they are currently in the midst of working through the default now. CDS won't be triggered and will expire without the big payoff. Allowing bondholders and their cheerleaders creating economic and financial mayhem across the globe is no longer going to be tolerated. Bernanke and Co. won't be dropping money out of helicopters willy-nilly every time the markets tremble as the markets will soon learn that they no longer control the world, for if sovereigns bowed before the so-called masters of the universe, we surely will have one rolling crisis after another and that's not a realistic long-term solution.

There are some that want to see the end-game played out in some chaotic, barbaric fashion, but I have a hunch that none will see it play out that way. Do we go out with a bang or as a whimper? Maybe neither.

Reality , i.e. Italy downgrade 3 notchs is nowhere near as important when compared to the anouncement of a "dubious" plan to have a plan when a plan is needed to be had in cases like the one now where a plan is needed.

I see the final impulse wave up to end a wave 2, from an Elliot wave perspective, leading to a very large and intense wave 3 down. The impulse wave about to unfold will be the 5 wave leg C of a flat. This will complete the zig-zag flat combo that constitutes the wave 2.